Option Value and Dynamic Programming Model Estimates of Social Security Disability Insurance Application Timing

Richard V. Burkhauser (), J. S. Butler and Gulcin Gumus ()
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J. S. Butler: University of Kentucky

No 941, IZA Discussion Papers from Institute for the Study of Labor (IZA)

Abstract: This paper develops dynamic structural models - an option value model and a dynamic programming model - of the Social Security Disability Insurance (SSDI) application timing decision. We estimate the time to application from the point at which a health condition first begins to affect the kind or amount of work that a currently employed person can do. We use Health and Retirement Study (HRS) and restricted access Social Security earnings data for estimation. Based on tests of both in-sample and out-of-sample predictive accuracy, our option value model performs better than both our dynamic programming model and our reduced form hazard model.

Keywords: Social Security Disability Insurance; Health and Retirement Survey; option value; dynamic programming (search for similar items in EconPapers)
JEL-codes: H31 H55 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-pbe
Date: Written
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